Tiffany Misses on Q2 Earnings & Sales, Lowers Guidance

Tiffany & Company TIF succumbed to a negative earnings surprise in the second quarter of fiscal 2015, after registering back-to-back earnings beat. Shares of this jewelry retailer are down roughly 4% during pre-market trading session following the dismal performance and the subsequent trimming of earnings outlook thereafter.

The quarterly earnings of 86 cents a share missed the Zacks Consensus Estimate of 90 cents, and fell 10.4% from 96 cents delivered in the year-ago quarter. Strong U.S. dollar and increased selling, general and administrative expenses hurt the company's bottom-line. Including one-time items, the company posted earnings of 81 cents that declined 15.6% year over year.

On the other hand, net sales came in at $990.5 million, marginally lower than $992.9 million recorded in the prior-year quarter, and way below the Zacks Consensus Estimate of $1,006 million. Net sales also fall victim of the foreign currency headwind that lowered the value of the sales generated in the overseas market and also resulted in reduced spending by tourist.

However, in constant currencies, both net sales and comparable-store sales (comps) jumped 7%, reflecting growth across Japan, Europe and Asia-Pacific regions and higher sales of fashion gold jewelry and statement jewelry.

By geographic segments, sales in the Americas fell 2% to $475 million, while comps declined by an equivalent rate. Sales in the Asia-Pacific region climbed 4% to $245 million, and comps grew 1%. Sales in Japan jumped 5% to $125 million and comps rose by 1%, and sales in Europe came in at $123 million, up 2%, while comps increased 1%. Other region sales plunged 33% to $23 million, while comps decreased 5%.

In constant currencies, both sales and comps in the Americas remained equal with the year-ago quarter. Sales in the Asia-Pacific region grew 9%, while comps jumped 6%. Sales in Japan surged 27%, while comps increased 21%. Both sales and comps in Europe soared 19%.

Gross margin of 59.9% remained even with the prior-year quarter, while operating margin contracted 360 basis points to 17.4%.

Store Update

During the quarter, Tiffany opened 6 company-operated outlets. As of Jul 31, 2015, the company operated 304 stores (124 in the Americas, 79 in Asia-Pacific, 56 in Japan, 39 in Europe, 5 in the U.A.E. and 1 in Russia).

Other Financial Details

Tiffany ended the quarter with cash and cash equivalents and short-term investments of $771.4 million, and total short-term and long-term debt of $1,075.4 million, reflecting 37% of shareholders equity. Capital expenditures of $98 million were incurred during the first-half of fiscal 2015.

Tiffany bought back shares worth $23 million in the quarter and $56 million in the first-half of fiscal 2015. As of Jul 31, 2015, the company had $217 million at its disposal under the share repurchase authorization of $300 million that will expire in Mar 2017.

Guidance

Given the global turbulence and the strong dollar, management now projects fiscal 2015 earnings to decline 2% to 5% from last year's $4.20 per share. It further indicated that the third quarter net earnings may not witness growth but may register an increase in the fourth quarter. The current Zacks Consensus Estimate for fiscal 2015 stands at $4.21 per share, and could witness a downward revision in the coming days.

Favorably Ranked Stocks

Better-ranked stocks in the retail sector include American Eagle Outfitters Inc. AEO, Aéropostale, Inc. ARO and Citi Trends Inc. CTRN, all carrying a Zacks Rank #2 (Buy).

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